1.5 The Lifestyle of VR Ownership

Your clients may come to you with a clear idea of why they are purchasing; they might have a vague idea that renting is something they would like to do, but have no idea how to go about it, or it may be a new concept you are marketing to your current investor clients.

Even if they’ve done a lot of research there are bound to be many issues they’ve not considered and that’s where your knowledge will be invaluable.

Prospective owners will often have pre-conceived ideas of what a vacation rental is – often these bear little relation to the reality of the business. They often come armed with conflicting information they have seen online or heard from friends and family.

They may be under the impression they can invest in a second home and factor in a certain amount of rental income before they consider the cost and management implications.

This can be a significant financial error so bringing them the bare facts of the vacation rental model together with the lifestyle will help them come to an informed decision.

The Lifestyle Benefits

The allure of vacation rentals is hard to ignore and more and more people are finding out about them every day. However there is still a long way to go as more than 40% of the US population are unaware they can rent a complete home; have privacy and not have to rely on hotel restaurants for meals on vacation anymore.

Many second home owners have yet to find out that their vacation home doesn’t have to sit empty anymore. For those that thought of a vacation home as a dream, the potential of rental has made purchase possible.

Investors, who may have previously only considered the long-term market are now recognizing the greater income potential offered by vacation rentals.

What a vacation rental is not:

It is not a time-share but often people will refer to friends who have time-shares and call them vacation rentals, so it will be important for you to explain the difference.

This simple explanation from How Stuff Works describes the mechanics of time-share:

“A timeshare is a different kind of real-estate purchase. Instead of paying full price for the property and owning it yourself, you pay a share of the price. This share allows you to use the property for a certain period of time every year. The rest of the year, other people who purchased shares get to use the property. How long you get to stay there depends on your share. A 1/52 share will get you one week per year.”

A timeshare owner purchases only the right to occupy the property; the title typically remains with the principal owner. Essentially, a timeshare offers the opportunity to use a property for the same week or two each year, without the uncertainty and hassle of making reservations.

It is not fractional ownership, although as with time share it is possible to rent the weeks owned.

With fractional ownership, each owner holds part of the title. The deed to the property is split into several different pieces with one for each individual owner. As a result, if the property’s value increases in value, so does the value of the fractional ownership. As with timeshares, each purchaser in a fractional ownership has the right to use the property for a specific time period; however, it is typically for more weeks than with timeshares.

Dependent on the terms of the time-share/fractional ownership contract, it may be possible to rent (sublet) the time period owned, and it’s important to thoroughly check the terms of a contract before deciding on a time-share or FI purchase.

Owning a vacation rental offers the lifestyle benefits of being able to use the property as it suits the owner, rather than under the terms of a time-share or fractional ownership contract. The owner has the freedom to dictate his/her own terms as to occupancy; enjoy it for a Christmas break with their family and perhaps a couple of weeks in the summer and rent it for the rest of the year.

However the financial benefits will be dictated by the way the property is used. After all, if an owner uses the majority of the high season period, the reduced rental income in the low season may not justify the purchase decision.

It is not ‘an Airbnb’. Since Airbnb was launched the word has been adopted almost as a verb. To Airbnb a property means to offer a home, or a part of one for short-term rental. It’s important to convey to investors that Airbnb is only one of many places to advertise a property, and success in rentals will often lie in marketing on the right platforms.

Buyer Types and Long Term Benefits

Your client’s objectives and goals will differ given their motive for the purchase, however many come to the market for a second home with the long-term in mind. These could be future retirement plans, a family vacation home for years to come, or pure investment.

A family may benefit from having a fixed vacation home they can come to while the children are growing – they know the place, have their own things that make it comfortable and welcoming, and may even have a vehicle and recreational toys kept at the property. The rental income is more of a bonus than a primary goal but it is a benefit nonetheless.

Families are more likely to choose properties that will also be in demand in the rental market.

The pre-retiree generally has the goal of buying a property early to enable them to pay it off before they are in a position to retire permanently to the location.

Their criteria for purchase will be very different from families and investors. They may choose proximity to hospitals over being near to attractions; gated communities over condos, and have more long-term needs. They need to be guided towards the expectations and demands of the rental market and may have to compromise in order to secure a property to meet their specific retirement goals.

Investors want a clear return on investment, but many who opt to buy vacation homes for rental want some use for themselves. Otherwise, they would be better off buying for residential rental or a ‘renovate and sell’ model. For those in city areas, there can be long-term benefits over residential rental in the overall rental revenue collected.

Knowing your target market, their financial and long-term goals, and their motivations is key to helping them make the right decision.

The bonus material on Buyer Personas in the Resources section will help to determine your target markets and how to package your offers to them.